Can you be a half-way Spirit Leveller?

I recently gave a talk at the Libertarian Alliance entitled ‘Spirit Level Egalitarianism, Happiness Economics and Steady State Economics’. When asked where the Spirit Level debate was likely to be going, I reckoned that the message most people would take home from it would be something like: ‘The Spirit Levellers may be overstating their case a bit, but surely there must be something to this.’

As it happens, this is exactly the line taken by Jeremy Warner in the Daily Telegraph. Warner reviews a new OECD report which shows that since the 1980s income inequality has increased in most developed countries. He then goes on to link these findings to his take on the Spirit Level:

‘Personally, I find this [the Spirit Level’s message] far too simplistic [...] The causal link implied by the writers between inequality and human affliction is at best arguable. But there is no quarrelling with their central thesis.’

It is, of course, always easiest to say that the truth most be ‘somewhere in the middle’. But one needs to look at why it is that the hyper-egalitarian position fails to hold as soon as the choice of countries or indicators is slightly altered. The research on the determinants of Subjective Well-Being (SWB) is insightful in this context. It shows that people do indeed compare themselves to others, and evaluate their living standards vis-à-vis one or several benchmark groups. However, these imputed benchmark groups seem to consist of people with fairly similar socioeconomic characteristics. In other words, the man on the Clapham omnibus compares himself to his neighbours, colleagues, former schoolmates and/or others in the same line of occupation. His benchmark group is not the nation as a whole.

So we may be talking about two completely different cups of tea. The drivers of inequality which the OECD report identifies – such as skill-biased technological growth and skill-biased changes in trading patterns – suggest that what has increased are differences between different population subgroups, rather than within-group differences. This may bother Spirit Levellers and OECD statisticians, but presumably it does not bother the man on the Clapham omnibus a great deal.

Warner does not approve of the OECD’s recommendation to reduce inequality primarily through the tax and benefit system. Instead, he recommends improving education and training. Since nobody is in favour of worsening education and training, this seems to make the article uncontroversial in the end. But it is an attempt to have one’s cake and eat it. Skill-biased technological growth means that nowadays a given skill differentialtranslates into a greater income differential than it would have a generation earlier. Raising levels of education and training across the board, though of course desirable, will not necessarily decrease differences in attainment. It could conceivably even magnify them. Either way, no educational reform can turn the UK or the USA into an English-speaking version of Sweden.

Thus, the old question of whether we are willing to constrain the successful for the sake of achieving greater material equality cannot be removed from the agenda so smoothly. The Spirit Levellers, at least, have a clear position on this. Does Jeremy Warner have one too? 

Jeremy Warner's logic is strange. It is almost as if he is saying that, despite the problems with the Spirit Level, just because there are SO MANY graphs (all of which have problems) there must be something in it or that the evidence is so strong that even if there is no causality proven there must be a little bit of causality. Two tangential things I might add. There is much talk about positional goods being the most sought after as society becomes richer. I wonder if the driver is actually the fixed supply in our housing market and that this makes one good (on which we spend a lot of our income) LOOK positional. In extremis, with a fixed supply of houses, we cannot have bigger houses as we get richer - we can only buy and sell the existing houses within the existing population (thus looking as if we are jockeying for position as we get richer and try to get a bigger house but houses themselves do not get bigger). In a more liberal planning regime we can all have bigger houses as we get richer. This should be a testable hypothesis. Finally, we might in fact want less education and training - they come with a cost. Certainly real options theory would suggest that, as an economy changes more rapidly as it seems to in the current era, we should defer more of our education and training - in other words we should not be subsidising full-time under-graduate degrees and raising the school leaving age but allowing people to acquire education and training as they need it during their life (at their own expense).
Yes, I like the idea of less compulsory schooling (with a much lower 'school-leaving age'), leaving open the possibility of market-based education or training later. In effect that would transfer at least some of the 'investment' in education from the compulsory to the voluntary sector, as well as from earlier to later. But if one of the aims of state schooling is to 'equalise' the educational attainments of the population, I rather doubt if it succeeds in that; so I'm not convinced that freeing the population, even slightly, from the state schooling system would make any significant difference to 'inequalities' (which I prefer to call 'differences'). But I don't care.
Two points that struck me here: i) The question of what causes inequality itself. The assumption that 'free markets' cause inequality and state intervention of almost any sort ergo solves inequality seems almost universal! But this causality is rarely questioned fully especially in any kind of popular debate. Given that no economy is free of intervention this is very true, especially as intervention is rarely measurable per se (wealth redistribution might be, but regulatory intervention is less so). The standard tropes of the Nordic model versus the US are usually wheeled out and the argument left there. ii) Any argument to improve education would, to my mind, involve withdrawing the state entirely from it! However, when people say 'we must improve education' they usually mean 'we must transfer more money from the productive private sector into inefficient state education systems where it can be wasted on bureaucracy and bad results'. Again, this ultimately requires a two-pronged approach to refute the spirit level (as I often find myself saying) i) The data and statistical analysis are deeply flawed ii) Even if (i) were correct, it does not follow that inequality is caused by absence of state intervention and the corrective to inequality ought to be state intervention. In essence, the Spirit Level seeks to answer the question 'what are the consequences of inequality?' - it fails. But even if it had succeeded, it didn't even bother to ask the questions 'what causes inequality?' and 'what is the best means - economically and morally - for mitigating against inequality?'

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